Tax Counsel's Guide to Partnership Disguised Sales Rules: Structuring Transactions to Avoid Taxable Events

Section 707(a)(2) provides rules for disguised sales and payments between a partner and a partnership, and rules for disguised sales of property between partners in a partnership and the tax treatment of such transactions. However, Treas. Reg. 1.707-3 provides a notable exception to the general rule that contribution of property in exchange for a partnership interest is a non-recognition event. Transactions falling under those listed in the regulation are treated as a sale of property by the partnership to the transferring partner, creating a taxable event requiring gain recognition. 

Tax counsel must recognize that Section 707 and its regulations put the burden of proof on the partnership to defend a transaction against a disguised sale challenge and the impact of potential amendments under the One Big Beautiful Bill Act.

Listen as our panel discusses the facts and circumstances tests under current Treasury regulations and potential changes to the disguised sale rules in the 2025 tax reform, and offers useful guidance in drafting transfer documents to withstand IRS scrutiny

I. Current status of disguised sale regulations

II. Impact of 2025 tax reform under the One Big Beautiful Bill Act

III. Structuring considerations to avoid disguised sale reclassification

IV. IRS approach to property and key areas of focus

V. Best practices for tax counsel to minimize adverse tax consequences

The panel will discuss these and other key issues:

• Impact of 2025 tax bill on partnership transactions
• The IRS approach to what constitutes "property" in partnership transactions
• Transactions that are most likely to trigger disguised sale and anti-abuse rules—and result in taxable events

Learning Objectives:

After completing this course, you will be able to:

• Ascertain key tax issues stemming from the recently passed 2025 tax bill on partnership transactions
• Understand the IRS' approach to what constitutes "property" in partnership transactions
• Identify transactions that are most likely to trigger disguised sale and anti-abuse rules—and result in taxable events

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Working knowledge and understanding of tax credits, sourcing rules; foundational knowledge of basis calculations and capital gains tax.

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).